Arbitrating Competition Law Cases

Emanuela Lecchi, Partner, Head of EU and Regulatory Group and Michael Cover
FCIArb, CArB, Partner, Head of Contentious Intellectual Property, Charles Russell LLP1

This is the first part of a two-part article on private enforcement and mediation and arbitrability
of competition law. This article looks at arbitration. In the current fluid situation, where the
private enforceability of competition law is being promoted by competition authorities in Europe
but is still in its infancy, it is unclear what the future landscape will look like. Traditional
questions as to the very arbitrability of competition law claims seem to have been resolved and
today no-one would seriously contest the possibility of arbitrating competition law issues.
Differences amongst jurisdictions remain, however, as do questions as to whether the so-called
"second look" doctrine developed in the US, which appears to be mirrored by EC precedents,
would in practice be meaningful or would perhaps result in judicial interference in the arbitration
procedure. There remains also a question as to whether the competition authorities will or will
not be willing to support the process of arbitration.

Competition Law - the Background

Competition law, whether domestic or European Community, seeks to encourage the creation of
a competitive marketplace, seen as the main driver towards innovation and development, and to
ensure decreasing prices, to the benefit of consumers. Table 1 below sets out some general
background on how competition law works. This article looks at arbitrating competition cases,
against a background where arbitration is seen as the natural forum for resolution of significant
international commercial disputes.

Private Enforcement

Until recently, the principal method of enforcing competition law in Europe was investigation by
one of the relevant national competition authorities (such as the Office of Fair Trading (OFT) in
the UK) or the European Commission. These investigations lead to fines being imposed on the
offending company, rather than damages being awarded to parties who have suffered loss as a
result of the anti-competitive behaviour.

Private enforcement was always possible but more of a theoretical possibility than a reality. In
recent years, however, there has been a move to encourage private enforcement of competition
law. This was spearheaded by the European Commission, following the publication of the Ashurst
Report in 2004, which pointed to the fact that private actions for breaches of competition rules
were totally underdeveloped in Europe. This led to the UK Government introducing amendments
to the Competition Act 1998 (ss47A and B), creating a specific right for private parties to claim
damages after infringement decisions by the competition authorities. Companies or individuals
who have suffered damage as a result of anticompetitive practices can claim damages from the
offending party in the English courts by one of the routes highlighted in Table 2 below.

Private Enforcement in the UK

As can be seen from Table 2, if an authority issues a decision that competition rules have been
breached, a third party which has suffered damages can claim on the basis of that decision. The
fact that competition law has been breached is already established - damage and causal link
remain to be proved. A special tribunal, the Competition appeal Tribunal (CAT), hears these
claims. Alternatively, it is possible to start an action in the English High Court where both the fact
that there has been a breach of competition law and that damage has been suffered as a result,
will have to be established.

1
The authors are very grateful to Lynne Gregory of Charles Russell LLP for her contribution to the drafting of this
article
These claims can be difficult to prove and cases can last for years. By way of example, Crehan v
Inntrepeneurr2 took nearly 15 years to reach a final decision in the House of Lords. Further, no
private award of damages has yet been made in an English court, although, as seen below, a
number of claims brought in England and in Scotland are understood to have settled. The
original award in Crehan was overturned by the House of Lords (Mr. Crehan, a pub landlord, was
originally awarded damages based on anti-competitive terms in his pub lease).

There are only a few damages cases pending in the CAT at present. The Consumers Association
has recently brought the first representative damages claim for infringement of UK competition
law against JJB Sports on behalf of 130 consumers in relation to replica sports kit (as a result of
the OFT's finding that JJB had been involved in a price fixing cartel). In what is a high profile case,
the Consumers' Association is seeking, in addition to compensatory damages, exemplary
damages to the sum of 25% of the relevant turnover of the defendant. The amount of damages
to be awarded for a breach of competition rules is itself unclear: whilst the rules are reasonably
well established (the measure would be the tortious measure of damages and exemplary
damages might be available), there is little guidance to be obtained from case law. The case
appears to be stalled. It was brought in March 2007; a case management conference was
scheduled for 26 April 2007 but was adjourned, possibly to allow the parties to discuss
settlement terms and there has been no further activity on this case.

As seen above, a number of cases are understood to have been settled without publicity. Some
such cases are believed to have settled in the Vitamins cartel case. One case which received
some publicity involved Aria Foods which, in October 2006, brought a £15 million damages
action in the Court of Session in Scotland further to the provisional findings of the OFT that nine
defendants had been involved in unlawful price fixing in the Scottish milk sector. Further, Kellogg
brought an action in the English High Court against its main supplier of cartonboard, after a
Commission decision that the latter had been involved in a EU cartel. The case was ultimately
settled.

Before the CAT, there has been to date an award of interim damages (£2 million) in an action
brought by Healthcare at Home Limited against Genzyme Limited, after a finding that Genzyme
had breached UK competition law. The award of interim damages might have been a factor to
influence the decision by Genzyme to settle, in January 2007.

On 26 June 2007, the CAT allowed a damages action to be brought against Morgan Crucible
Company plc. The case is interesting in relation to the possibility of bringing a damages "follow
on" action based on a decision of the European Commission, even though some of the
companies found guilty of a cartel might have appealed the Commission decision to the
European Court and as regards the relationship with the US jurisdiction - both these issues are
outside the scope of this article.

2
2 [2006] UKHL 38
Competition Law - Table 1 - The Background

Competition law prohibits:

• entering into anti-competitive agreements; and/or

• abusing a dominant position.

Those having breached competition law are liable for penalties:

(a) fines of up to 10% of annual turnover;

(b) agreements are null and void;
(c) those that have suffered loss as a result of a breach of a prohibition, can claim damages
("private enforcement"); and
(d) cartels may be criminalized and carry criminal sentences (including jail), e.g. in the UK.

There are therefore two types of claims for damages under Competition Law:

(e) Damages as a result of entering into an anti-competitive agreement; and/or

(f) Damages as a result of an abuse of a dominant position.

The most extreme form of anti-competitive agreement is a cartel. Those who have suffered as a
result of the cartel can claim damages, amounting to the difference between the market value
that they should have paid for the products and the artificially raised price. It is believed that a
cartel can raise the price by 10%, on average. It is possible to claim damages for loss suffered in
anti-competitive agreements other than cartels. Although such a breach is not as serious as a
cartel, it is prohibited as it will harm consumers in the same way.

It is interesting in the context of this article to consider that in practice not all competition law
issues will fall within the scope of arbitration. Issues arising in the context of an abuse of a
dominant position will only be likely to arise in arbitration if the parties entered into an ad hoc
arbitration agreement for the particular dispute (it seems unlikely that both parties will have an
incentive to do so). Equally, cartels are agreements between the cartelists and, although not
impossible, for a damages action to arise in arbitration, the claimant would need to have an
agreement with the cartelists. More generally, if competition issues arise in relation to a number
of agreements with different parties, it may be difficult to consider all the issues with each party
in arbitration.

Arbitration and Competition Law

The cases above show an intriguing feature - settlements are, of course, generally reached at the
end of a confidential procedure and the terms of settlement remain for the most part
confidential.

Historically, there was a perception that competition law disputes were not arbitrable, being the
preserve of national and supranational competition authorities. Competition rules were
considered to be part of public policy and, as such, in need of being interpreted in a uniform way.
The concern of competition lawyers was that matters of competition policy should not be
resolved in a private and confidential arbitration; arbitration is mostly a private process and
therefore there was a perceived danger that competition law would not be applied openly or
consistently. Further, the European Court of Justice (ECJ) ruled in 1982 that arbitral tribunals
could not refer questions of EC law including EC competition law to the ECJ3. These concerns are
possibly less relevant today, in the light of the considerable expertise acquired by the business
community at large in the application of competition rules. Further, the difference in terms of
publicity between a case that settles and a case that goes to arbitration may be minimal in
practice.

Arbitration has become increasingly popular in today's global economy, particularly as a means
of resolving international disputes. Many agreements raising competition law issues will include
compulsory arbitration clauses. Parties typically choose arbitration at the outset of a deal by
inserting an appropriate dispute resolution clause in their contract. The process is mostly private,
confidential and flexible (compared to the very open and public nature of litigation). The parties
are able to choose their arbitrator (either one or three depending on preference or the relevant
rules), who can be or include a technical or legal expert or both - this is in contrast to court
proceedings, where a single judge is imposed who may have no knowledge or experience of the
subject matter of the dispute. This may be a particular risk in competition law enforcement
cases.

The parties can choose their own procedures and, in arbitration, may limit those aspects which
can significantly slow down the equivalent court process (such as disclosure of documents).
Further, the right to appeal a decision of an arbitral tribunal is extremely limited ( or excluded
altogether) and this can promote a speedy final resolution of the dispute (again compare this to
litigation where in England parties have multiple levels of appeal first to the Court of Appeal and
then, potentially, to the House of Lords (see, for example, Crehan)). Parties can also choose a
"neutral" place and governing law for the arbitration - this is a major advantage in international
contracts where neither side will wish to adopt the home courts or law of either party. The
parties can either organize the arbitration themselves and formulate their own rules or they can
use the administrative services and adopt the rules of, one of the recognized international
arbitral institutions such as the LCIA or the ICC. International enforcement of arbitral awards is
also effective, courtesy of the widespread applicability of the New York Convention. As a result of
these factors, arbitration has become an increasingly popular dispute resolution option,
particularly in international contracts.

In fact, one concern expressed by arbitrators on the arbitrability of competition law was precisely
that there was a risk that the parties may find their ability to reach private resolution of their
own affairs somewhat curtailed. In fact, in certain jurisdictions in Continental Europe, for
example, Germany, the tribunal is under a positive obligation to encourage settlement.

3
Nordsee Deutsche Hochseefischerei GmbH v Reederei Mond Hochseefischerei Nordstern AG & Co KG C102/81 [1982]
ECR 1095.
 Table 2
The Routes to Damages for Breaches of Competition Law in the UK

Has there been a decision by a competition authority?

Article 81/82 decision
No decision – private action – e.g.
by the Europe
Wireless Group Plc v RAJAR
Or
Commission / decision
by national authorities

Is at least one of the defendant companies in the UK?

The "but for" test

Provimi - (interlocutory hearing) UK companies and non-UK companies, having

purchased outside the UK / suffered damage outside the UK, were able to bring an
action in the UK against the UK subsidiary of a multi-national group - "but for" cartel
activity in the UK there would have not been a cartel in other countries. US and German
courts have decided differently (i.e. decision in Empagram, and decision of the
Mannheim and Meinz courts)

Breach of Statutory Breach of Directly Section 47A UK

Duty (Common Law) Effective Community law competition Act 1998
provision

=a claim for damages in the High = claim for damages by application to

Court. Obligations imposed by Art. the Competition Appeal Tribunal Can
81 are directly enforceable (s 2(1) of Unteste only apply to the CAT once:
the European Communities Act d • A decision has been made
1972), a breach of 81 = the tort of a • All appeals have been decided or
breach of statutory duty Garden time limit for filing an appeal has
Cottage Foods Ltd v Milk Marketing lapsed
Board. Additional cases: X and In force since 20 June 2003. This is a
Others v Bedfordshire CC; Crehan; procedure for making a claim (not a
Provimi. Effet Utile - EU principle of cause of action). Tort principles of
Disadvantages of UK system:
effectiveness of remedies for breach evidence and procedure apply.
of EU law.
• HighAdvantages
cost of UK system:
• "Loser pays" rule (contrast with "American Rule")
• Disclosure laws (greater discovery)
• Greater damages may be available (exemplary, i.e. punitive, damages) - though no
precedent
• No precedent of "passing on" defense
Disadvantages of UK system:

• High cost
• “Loser pays” rule (contrast with “American Rule”)
The US - the birth of the so-called "second look" doctrine

Historically, the US courts have held that competition claims could not be resolved
by arbitration. In the case of American Safety Equipment Corp v JP Maguire4, the
court stated that antitrust violations could affect thousands, even millions, of
citizens and inflict severe economic damage and, accordingly: "we do not believe
Congress intended such claims to be resolved elsewhere than the courts."

However, in Mitsubishi Motor Corp v Soler Chrysler Plymouth Inc5, the US Supreme
Court held by a majority that antitrust issues arising out of international contracts
were arbitrable. They accepted that antitrust laws were extremely important and
that such claims could be significant and complex. However, they also considered
that they should respect international arbitral tribunals and consider the need for
predictability in commercial disputes. The court did, however, suggest that, when
the time came for the award to be enforced, the courts, at that stage, could check
that any relevant competition laws had been addressed. If they had not, then the
court had the option of refusing to enforce the award under the New York
Convention, on the grounds that it was contrary to public policy.

The Mitsubishi judgment is the basis of the so-called "second look" doctrine. The US
Supreme Court is effectively stating that it believes that arbitrators will be able to
decide antitrust cases but, at the same time, requires arbitrators to decide the case
in a way that will ensure that the US Supreme Court will be satisfied with the
outcome. Therefore, it would appear on one reading that arbitrators may have to
respect the extra-territorial character of US antitrust laws, even if this means going
against an explicit choice of law by the parties. Further, the role of judicial
intervention is somewhat unclear - whilst it is true that the New York Convention
reserves the right for each country to refuse enforcement of awards if enforcement
will be contrary to the public policy of that country, in practice most awards are
honoured without the need for enforcement in the courts, so the practical impact of
the second look doctrine is doubtful.

The Arbitrability of Competition Claims in Europe

Can competition claims be arbitrated at all, and, assuming they can, is it

appropriate to arbitrate them?

Turning to the first question, the ECJ in Eco-Swiss6 ruled that a national court to
which application is made for the annulment of an arbitration award, must grant
that application if it considers that the award in question is, in fact, contrary to 81 of
the EC Treaty (the prohibition on cartels and other agreements or concerted
practices which restrict competition). This case has been interpreted as meaning
that an arbitral tribunal is obliged to apply EU law (even of its own accord) in cases
where the award may be enforced in an EU state. Similarly to the US position, if the

4
391 F.2d 821 (2nd Cir. 1968)
5
473 US 614, 105 S. Ct. 3346 (1985)
6
Eco Swiss China Time Ltd v Benetton International NVC-126/97 [1999] ECR 1-3055
arbitrator does not do this, the judge seeking to enforce the award may regard the
non-application of EU law as a breach of public policy.

This approach was followed in ET Plus SA v Welter,7 in which the High Court found
that claims alleging a breach of Articles 81 and 82 (Article 82 prohibits the abuse by
an undertaking of a dominant position) are arbitrable if they fall within the scope of
a contractual arbitration clause. The court stated that there was no realistic doubt
that competition claims were arbitrable. The issue was whether the anti-trust claims
came within the scope of the arbitration clause. Following an analysis of the
relevant clause, the court concluded that it covered any potential dispute
concerning the performance or non-performance or construction of the contracts
and, as such, included anti-trust claims.

Further, it appears from a decision in an ICC arbitration that parties do not need to
have chosen a particular law as the governing law of the contract to rely on that
country's competition rules. In ICC case 8626 in 1996, one party's defense to the
allegations of breach of contract was that the relevant clauses breached Article 81.
The contract was governed by New York law and the seat of the arbitration was
Geneva. However, the arbitral tribunal accepted that EC competition law applied -
this appears to have been because the award was likely to be enforced in Germany
and the arbitral tribunal followed the Eco Swiss line of reasoning namely that a
German court would be unlikely to recognize the award if it did not consider EC
competition law, as it would be deemed contrary to public policy. The tribunal also
took account of the fact that the relevant restrictions were likely to affect trade
between member states of the EU. It is, however, arguable that this infringes the
nature of the arbitral process i.e. the ability to choose the governing law and not
have mandatory provisions and other laws imposed on the parties.

Note, however, that not all courts have adopted this view. The Swiss courts, at
least, have ruled that competition laws are not mandatory rules of public policy and
arbitral awards which failed to take account of them could still be enforced (see
Bundesgerichf8).

The European Commission and Arbitration

The European Commission has, itself, increasingly begun to use arbitration

commitments as part of its merger control function. When clearing a merger with
commitments or "undertakings", it often provides in its merger clearance decision
(or the commitment letter appended to it) that the merged entity must submit to
arbitration with third party beneficiaries of rights flowing from a behavioral remedy
under the merger clearance decision. There is a corresponding right on the part of a
third party to trigger the arbitration commitment to enforce rights it derives from
the behavioral remedy and to obtain damages and/or specific performance.

This use of arbitration as part of a package of commitments is a recognition by the

Commission of the speed and expertise of arbitral tribunals, the ability to recover
private law damages and the ease of enforceability of any award under the New
York Convention. The cost of the arbitral proceedings is also borne by the third
7
[2005] EWHC 2115 (Comm)
8
4P278/2005
parties, thus saving Commission resources. The arbitration provisions are in this
case an adjunct to the Commission's public law powers e.g. the ability to impose
fines or other sanctions.

As seen above, the European Court of Justice (ECJ) ruled in 1982 that arbitral
tribunals could not refer questions of EC law including EC competition law to the
ECJ9. What about the European Commission (and national competition authorities)
supporting the application of competition law within arbitration?

The European Commission can file "amicus curiae" briefs. The Commission has the
right to file such briefs in national courts hearing enforcement and annulment
proceedings but no corresponding right in arbitrations. The parties could ask the
Commission to file such a brief but it would be difficult for the arbitrator to request
this in the absence of the parties' agreement as it would breach the general
principles of confidentiality of the arbitration. There is generally a higher level of
interaction between national courts hearing competition matters and the European
Commission such as the court's right to request information from the Commission
etc. None of these apply to arbitrations - this may be an advantage - allowing the
tribunal more autonomy and avoiding the dispute being embroiled in lengthy
arguments and documentation from the Commission but it may hinder the correct
resolution of the competition aspects.

Conclusions - Advantages of Arbitration

Given that it seems that competition claims can generally be arbitrated, the
question remains whether there are advantages in using arbitration rather than
court proceedings. If a party does raise competition law issues, it should bear in
mind that these often require complex expert economic evidence which can be time
consuming and costly to prepare. Parties who wish to raise competition law issues
may also wish to opt for a more extensive right to disclosure of documents than is
typical of arbitration. This is because extensive disclosure is more likely to "unearth"
evidence of anti-competitive behaviour - it is, however, expensive and time
consuming and therefore lessens the advantages arbitration enjoys over litigation.
A party may, of course, be reluctant to accept a right to full disclosure, particularly
if it does have something to hide.

Arbitration is a useful method of dispute resolution since it offers a greater degree

of flexibility, privacy and neutrality than court proceedings. This can be useful in
cases with a competition aspect, where parties may not want details of their alleged
anti-competitive practices being made public. However, the arbitrator may not
address the competition aspects adequately in the absence of the type of lengthy
disclosure, expert evidence and intervention from the European Courts (and the
European Commission) that may be available in court proceedings. If Commission
evidence were available in arbitration, it would increase the cost and length of the
proceedings and thus remove some of the main benefits of arbitration. The element
of confidentiality - often the key advantage of arbitration - will, however, remain.

Emanuela Lecchi
Michael Cover
9
Nordsee Deutsche Hochseefischerei GmbH v Reederei Mond Hochseefischerei Nordstern
AG & Co KG C-102/81 [1982] ECR 1095
This article originally appeared in "Arbitration, The International Journal of
Arbitration, Mediation and Dispute Management", February 2008